Merriman

After cleaning the garage, packing away your winter clothes and cleaning the windows, turn your spring cleaning efforts to your finances. Here are ten ideas to freshen up your financial situation:

1.      Reduce paper: Most banks, brokerages, credit cards, and utilities offer online delivery and storage of statements and bills. Sit down with your paper statements and see how many you can move to online. You will save the time spent opening mail, remove clutter and help the environment.

2.      Pay your bills online: Sign up for an online bill payment service if you don’t already. Set up automatic payments for recurring bills.

3.      Purge: Get a good shredder and use it aggressively. You really don’t need the water bill from two years ago. Purge! This can also help reduce your risk of identity theft.

4.      Eliminate redundancies: Eliminating clutter is not only about getting rid of paper; Identify what accounts are redundant and can be combined and/or closed.

5.      Organize: Get a label maker and create a small, efficient filing system.

6.      Reduce costs: Review bills you get from cable and phone companies, because when contracts expire they may revert to higher charges. Give them a call and you’ll be surprised how easy it is to have your rates reduced.

7.      Check your coverage: Review your insurance coverage to make sure that it is appropriate for you.

8.      Compare interest rates: Make sure your banks and credit cards are competitive for their fees and interest rates.

9.      Track your goals: Create easy-to-use systems for tracking your big picture goals, including a simple budget, college savings, and retirement.

10.  Think about getting help: Identify what areas you may need professional help, and create a plan to interview candidates.

Insurance can seem like a nasty word, and I’ve found that most of us would rather not talk about it. However, it’s all about protecting and preserving your assets. Our job is to help our clients grow their wealth so they can achieve all that is important to them. However, we’d be foolish if we neglected to also help them mitigate risks that could eat away at all their hard work.

When it comes to car insurance, I’ve found a few common mistakes.

Too little insurance

Many states require all drivers to maintain a minimum level of coverage in order to drive legally. Some states even require a minimum level of coverage for medical or personal injury. This is just a minimum standard and is often not even enough to cover the average cost of repair from an accident. In every accident, the human body is the weakest link in the chain and the one at greatest risk of injury. Cars are a fixed cost to repair – you know how much a BMW will cost to repair or replace, whereas we don’t know how much it will cost to save or repair a human body.

Rather than getting the minimum, consider carrying coverage based upon the car you drive, and more importantly, the cost of the other cars on the road.

Too much insurance

Every once in a while, I run across a situation where someone has purchased higher limits of coverage. Usually this person is terrified of the risks that exist in the world and will pay absolutely anything to protect themselves. As a result, they often have excess liability or umbrella insurance coverage, which is usually a very wise investment.

This additional insurance is fantastic, and something that I suggest for almost everyone. However, they might be paying more for auto insurance coverage that they just don’t need. If your auto insurance liability coverage is $500,000 and your umbrella coverage begins at $300,000, you are paying for $200,000 of unnecessary coverage. You could reduce your auto coverage to $300,000 and save on your premiums.

This is generally a good idea. However, if your umbrella coverage doesn’t include an additional layer of underinsured (or uninsured) motorist coverage, you might want to keep the higher coverage on your auto policy.

Incorrect deductibles

Generally speaking, the higher the deductible, the lower your premiums will be. The deductible is the amount you are responsible for before the insurance company provides protection.

I see situations where the deductibles are far too low and one could easily save 20-40% on their premiums by simply increasing the deductible. If you are able to stay accident free, you’ll often save enough on the premiums over the next few years to be able to cover this increased deductible. This isn’t always the case, though. I had a client looking to increase their deductible from $1,000 to $2,000 and we were both shocked that the premium savings was less than $100 annually.

If you drive an older car, it doesn’t make sense to have a low deductible for collision or comprehensive coverage on a vehicle that is relatively inexpensive to replace. In fact, if your car is older, consider getting rid of collision and comprehensive coverage altogether. If you do this, it’s still important to carry the proper amount of liability protection.

Not combining policies with one company

If you have your auto policy and homeowners policy with the same carrier, you’ll tend to save on your premiums and have better coordinated coverage with your umbrella policy, if you have one.

Failing to review your coverage

It’s very easy to get your insurance in place and then forget about it for many years. There are a few problems with the set it and forget it approach as your lifestyle and potential risks may change over time. It’s always good to have a history with an insurance company. However, you should periodically review your coverage to make sure that it fits your needs today.

Solely focusing on the cost

Insurance is one area where focusing solely on the cost could get you in a lot of trouble and financial pain. I find that many of us don’t want to be educated on the need for various types of insurance coverage, and often view this education as a sales pitch. You may find the lowest absolute cost for any given coverage, but it might pale in comparison with what a competitor offers for just a few dollars more. The devil is in the details, and I suggest looking at the details of the coverage so that you know exactly what you are getting for your money. Also, rather than focusing solely on the cost, you should work with a professional who will take the time to evaluate your situation and help you understand your insurance needs.

Happy Valentine’s Day!

Instead of giving your sweetie another trinket they will forget about within a week, why not give them the most thoughtful and caring gift you can give your spouse: A conversation about your finances. I realize this is not the most romantic gift, your spouse will thank you some day.

If you are like most married couples, you have divided up the household chores. This makes sense; it’s both efficient and keeps the peace. Unfortunately this often means that one member of the relationship takes over the banking, investment and retirement plan duties and the other pays little to no attention to that part of the household duties, as they have plenty on their plate as well. This may work out just fine for you as a couple, but what happens when one of you is not around anymore or incapacitated? As we all know, this can happen overnight with no warning, no matter what your ages.

I have worked with several clients who have lost their spouses to heart attacks, strokes and even accidents in the blink of an eye. The surviving spouse often times has no idea where all the investment and bank accounts are held, what the online passwords are or even how to log on to their home computer accounts.

They are in the midst of grieving and may have no idea how to free up cash for a funeral, where the copies of the wills are and who the current beneficiaries are on their retirement accounts.

Unfortunately this is not just limited to losing a spouse or partner. My brother and I went through this process following my father’s death. We had no idea if he had a will and if so, where it was kept. We found odd-looking keys at his home and wondered if they were for a safety deposit box or some other lock (we never did find out). It was a very challenging process both mentally and physically to grieve and try to sort out an estate with little to no information to go on. (To read more on this, please see my new eBook: The Transparent Legacy)

So this Valentine’s Day (or at least this month), be extra caring and give your loved one the gift of peace of mind and knowledge about your wishes, your finances and your passwords. But just to be sure you aren’t spending the month sleeping in the garage; you might want to also pick up those chocolates and that card.

Part I of this three-part series reviews 529 plan basics. Part II examines Washington State’s 529 prepaid tuition plan, the GET. This final section focuses on the best 529 savings plan I know, the West Virginia Smart529 Select.

Five years ago, my younger sister gave birth to her first child, a beautiful baby girl named Sydney. I was there at the hospital right after Sydney was born, and I instantly fell in love with her. When her 1^st birthday came around, I decided the best gift I could give to her was the gift of education (or at least help with it). I set up a 529 account and began making monthly contributions for her benefit. My examination of 529 plans four years ago led me to the West Virginia Smart529 Select, and I believe it’s still one of the best 529 plans available today.

Why the West Virginia Smart529 Select?

I like the WV Smart529 Select plan for three main reasons:

1. It offers access to a world-class family of funds, Dimensional Fund Advisors (DFA).
2. The costs are low and very reasonable.
3. Set-up, maintenance and contributions are simple and easy.

Dimensional Fund Advisors (DFA)

The WV Smart529 Select is the only 529 plan in the country where 100% of the investment options are DFA funds. Clients who work with Merriman may recognize these as the same funds we use in our investment portfolios. DFA funds are rooted in the science of investing, and we believe they offer superior exposure, diversification and returns when compared to most other mutual funds and Exchange-Traded Funds. Ordinarily, you can’t get access to DFA funds unless you are an institutional client or you work with a DFA-registered advisor. However, through the WV Smart529 Select, all investors have access to this great fund family for college savings purposes!

Costs

The WV Smart529 Select has no sales charges, application fees or set-up charges. There is a $25 annual maintenance fee, but that is waived if you enroll in their Automatic Investment Program and contribute $25 or more each month, if the account value is $25,000 or more, or if you’re a resident of West Virginia. The annual program expense ranges from 0.65% to 0.88% of the account balance each year, depending on the investment options chosen—very reasonable for this type of plan.

Set-up, maintenance and contributions

Setting up a WV Smart529 Select account was a breeze. I was able to establish and fund the account directly online, and also enrolled in the Automatic Investment Program which transfers money from my bank account into the 529 account each month. The minimum initial investment to open an account is very low, only $250.

The plan also makes investing simple by offering Age-Based Portfolios, which are managed by DFA and automatically shift in allocation every 3 years as the beneficiary grows older. For example, when the child is between 0-3 years of age, the portfolio will be invested in 100% stocks. When the child turns 19 or older, the portfolio will be 20% stocks, 80% bonds and cash. This provides for greater growth potential while the child is younger, but increases capital preservation potential as the child approaches college. The plan also offers Static Portfolios that don’t change with age, but for my money the Age-Based Portfolios are a simple and elegant solution.

Satisfaction

Four years into it, I’m still making monthly contributions into my niece’s WV Smart529 Select account. I intend to continue this until she finishes college, wherever she may go. She probably won’t realize all of the thought that went into selecting this plan for her; she may simply know that her uncle loves her and has planned ahead for her future. I, however, will know that I have used the best tool for the job, and that gives me tremendous satisfaction.

We’ve written two posts on our blog in the last year about the importance of having umbrella insurance for those who have wealth:

Why lose what you’ve worked hard for?

Umbrella insurance – why it might be a good idea for you

If you want to understand this type of insurance and the risks it covers in much greater detail, please click here to read an excellent white paper on this subject, published by ACE Private Risk Services.

In our household we refer to my wife as the “Chief Domestic Officer,” which means she is the keeper of passwords, pays the bills, monitors and tracks our insurance and, as you can imagine, anything in between. Although I am a financial advisor, I do not pay our household bills. Seems a contradiction of terms, given my profession, but in our house this is how it worked out.

Like most households we have our basic monthly bills – electricity, water, cable…you name it. We also have our scheduled and unscheduled bills. Take for example, our medical expenses: We know when our prescriptions need to be refilled and have a good idea of the cost; those are scheduled. And we have the unscheduled medical bills for those late-night trips to the ER with an illness or injury.

We run our home with a color-coded budget that fits on to a single page. We created it together with the goal that either one of us can use it with ease. The colors represent how the bills are paid, whether by check, internet or automatic debit. On a quarterly basis we sit down together and talk about our finances. We discuss upcoming events, vacations, bills, our goals and house projects. We try to plan for the next 3 to 6 months and during this time we also update the budget.

The second important element to running our household smoothly is the password spreadsheet. In this time of computers and smart phones, each person has to have a username and password for just about everything. On this spreadsheet we keep track of our username, password, website it belongs to, who it belongs to and the security questions that are asked. I have no idea what my wife’s high school mascot was. But I don’t have to because the answer is on our spreadsheet. The only password I have to remember is the one that gives me access to the spreadsheet. Then I can check the balance in our bank account or order flowers for my grandmother.

In the event that my wife is unavailable or if something should happen to her, I have the tools I need to keep our household running smoothly with minimal effort. Life is full of unknowns and I firmly believe that chance favors those who are prepared. Granted, bill paying is not the most exciting thing you probably have ever done, nor is it necessarily that complicated. Why make things any harder than they need to be? With just a little effort and time we have set each other up for success. The question is: Have you set your spouse up for success?

While all 50 states offer some type of 529 plan, only 18 states offer the prepaid tuition variety.  Some of these prepaid tuition plans are now closed to new enrollment, but Washington’s Guaranteed Education Tuition (GET) plan is still available to Washington residents (and WA residents only).  It is only one of five prepaid tuition plans in the country that is guaranteed by the full faith and credit of the state.  The GET was created in 1998 and is Washington’s only 529 plan.

How GET works

In a nutshell, account owners can purchase up to a maximum of 500 GET “units” at a specified price and redeem those units for college expenses in the future.  100 units represent the cost of one year of resident, undergraduate tuition and state-mandated fees at Washington’s most expensive public university (either the University of Washington or Washington State University).  Individual units are worth 1/100^th of that cost.  For the 2011-2012 academic year, GET units paid out at a rate of $102.23 per unit.  Account owners can use up to 125 units per year, plus any rollover units from a prior year, to pay the cost of qualified education expenses.

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At Merriman, we often help our clients plan for more than just retirement. One topic that commonly comes up is saving for college. My colleague, Lowell Lombardini Parker, wrote about the various college savings options in an earlier post, and this three-part series will focus specifically on the 529 plans highlighted in his article. Part I will review 529 plan basics; Part II will evaluate Washington’s 529 prepaid tuition plan, known as the GET; and Part III will take a look at the best 529 savings plan we know – the West Virginia Smart529 Select. (more…)

Recently, my daughter’s preschool put on an emergency preparedness seminar. Preparing for a disaster of some kind has been in the back of my mind for a while, but I hadn’t really given it my full attention until I was listening to the Red Cross representative walk us through possible scenarios and realized how entirely unprepared my family is.

Just last week, local news stations shared a warning from the U.S. Geological Survey: There is an 84% chance of a 6.5 magnitude earthquake in Seattle in the next 50 years. Our office is certainly prepared for an event like this — we have trained floor wardens, supply kits in the office and plans for running operations in the event of a disaster — but at home, I’m not nearly so prepared. (more…)

High school seniors are now in the process of getting acceptance letters to colleges.

When the thick envelope comes, there will be well-deserved joy, possibly followed by the dismaying thought on how to actually pay for those four expensive years.

Hopefully, parents will have done some advanced planning and saving for this major event. There are various strategies which can substantially ease the financial burden of higher education, some of which should be started many years before high school.

Background

Before we discuss strategies, let’s review some key terms, as they say in school.

There are two major financial aid forms which could be completed. The first is FAFSA, the Free Application for Federal Student Aid. This has to be submitted to be considered for any federal financial aid. It can be completed as early as January of the child’s senior year in high school. FAFSA assumes that 5.64% of parental assets can be used to fund annual college expenses, while the assessed rate on the children’s assets is a much higher 20%.

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